One more black day for gold and silver before the big lift-off?
Posted on 15 September 2010 with 7 comments from readers
Gold hit a fresh record high in overnight trading, passing the $1,270 mark for the first time in history. Even mad bad Jim Cramer is now a raging gold bull. Should that not stop anybody and make them think?
Is Cramer not the archetypal voice of populism that always gets it wrong? Buys on the highs, sells on the lows? It is certainly usually the case that an all-time high is a good point for long term holders – who had the wisdom to buy years ago – to cash out.
Longer term hold
ArabianMoney is still a long term holder of gold and silver but we wonder about the next few weeks or couple of months. Is the global stock market rally not teetering on the brink of a rollover and a return to the performance seen in the worst August in 10 years? It is impossible to say but the same quibble that we apply to gold also applies to stocks.
Does it make much sense to chase this rally any higher? Are those higher yields in stocks a safe bet or an illusion based on a false reading of the future profit outlook?
Whatever you think of the US economy nobody is arguing that it is going up like an express train. The only question is whether the slow train might speed up a little or go even slower for a long time. Business in such an environment becomes a cut throat fight for sales and that means lower profits even for the survivors, until the business cycle finally turns up again.
US economy bad
The reality of the US economic leading indicators is strongly negative (see this article), something the stock market bulls have managed to keep off the market agenda for the past two weeks. But reality has a habit of breaking up even the wildest parties.
How would gold and silver behave in a big market sell-off? We cannot be sure. The August experience was positive, with stocks down and gold and silver sharply up. But a really big stock market correction, or second leg of the crash of 2008 would probably be a different story.
The height of that market correction might be the last black day for gold and silver prices before the big lift-off in the rebound phase, and the last great opportunity to buy.
Yet this last correction in precious metal prices is probably not going to copy 2008, the leverage is just no longer in the gold and silver market to the same extent. But it would most likely still be significant for in a stock market crash somebody always needs to sell gold to raise cash to meet margin calls.
Gold has a much brighter long term future. The editor of this website is the author of ‘Dubai Sabbatical: The Road to $5,000 Gold’ and still sticks to that ultimate conclusion.
7 Comments posted by readers:
I personally would like the gold/silver markets to retreat for a while in order to build up my holdings but in the end it doesn’t matter because we are a long way from the final plateau where they will find their true value. Just keep building your physical holdings, not as an investment but as savings for the future. Whatever the “price” gold/silver will always be used as money somewhere in the world.
Excellent “food for thought”, Peter.
Two additional points of interest here:
Excessive Leverage of Hedge Funds:
Hedge funds are leveraged to the hilt at the present time, since they’re desperately trying to improve their rather mediocre performance this year. As the global markets continue to “roll over”, there’s a strong possibility that there’ll be a large hiccup (e.g. Greece, again!) that will result in more global turmoil. And as you’ve stated, a moderate sized stock market correction may force these Hedge Funds to liquidate their gold positions, putting downward pressure on gold (and silver).
JPM, et al, are Not Finished Yet:
Let’s not forget that there’s a gargantuan amount of silver and gold shorts on the COMEX, and JPM knows where all the gold and silver options “out-of-the-money” positions are. JPM, et al, are slowly trying to unwind these massive short positions, but I suspect that they’ll do what they always have done . . . namely, one week prior to options expiry in September, October, & November, they’ll enter numerous, moderately sized short positions followed by a big cover.
Given these two factors, the downward pressure on gold & silver prices may present more buying opportunities in the months ahead.
Scary interview with Robert Hirsch on http://www.aspousa.org.us about his new (with two other authors) peak oil book, “The Impending World Energy Mess.”
My real estate tax will be going down in this suburb for the wrong reason. I’m glad a major railroad line runs through Slidell. Note their stock market prediction. I’m wondering what is the best oil trust with some oil still left in the ground in a few years? Canada is changing their tax laws. Just my luck.
I’m with obewon on this.
Let the [gold/silver] buyer beware.
Over the last three years Jim Cramer has been dead wrong over 50% of the time. SDo if Cramer likes it, there’s a 50+% chance he’s dead wrong.
@Chome4:
JPM, et al, have been very aggressive over the last several weeks in trying to suppress the gold and silver spot prices. Every attempt at shorting these prices has been countered by significant buying.
While I am very bullish over the long term for precious metals (i.e. the physical kind!), I still believe that we’ll have another buying opportunity over the next few months. This window may open when the overall stock market declines by about 10% or so.
This would be the opportunity to “back up the truck”, and to buy whatever we can.
On the Flip Side:
If an investor doesn’t yet own any physical gold or silver, then the better strategy would be to hedge, by buying some now on the small dips, and hope for a larger dip in the months ahead to buy more.
@Howard:
Jim Cramer is an entertainer; his knowledge of markets, and especially commodities isn’t sufficient to fill a thimble. Just look at who his employer is, namely CNBC . . . their investment track record is abysmal, yet the few folks who tune into CNBC are those who wish to watch the pretty female “reporters” and talking heads. Their stupidity is wildly entertaining!
I am not selling what would I buy what currency to hold?
I see China took the trouble to deny its big bank was buying in the open market that imports though were 40% up on last year.
I just don’t know, there are keen buyers on the dips but at some point paper positions might sell off. I for one dont want paper others increasingly the same could that mean a big plunge?